Environmentally Sustainable Income and Shadow Prices of Natural Resources

Valuation of environmental resources is needed for making investment decisions in environmental management, for designing environmental policy, and for measuring environmentally corrected national income. Waste disposal services offered by the environmental media to the industry are productive inputs along with the conventional inputs. Industry uses pollution abatement technologies comprising end of pipe treatment, process changes in production, and changes in the use of inputs and products for reducing pollution loads as per the environmental regulation. In this type of situation the assumption of free disposal of pollution is not appropriate in describing the technologies of firms generating pollution. For a firm with a resource constraint, the reduction leads in turn to the reduction of production of output. A description of the technology of a polluting firm as one of producing jointly good and bad outputs with the weak disposability assumption makes it possible to account for the loss in the production of good output to reduce the bad output, pollution. The output distance function in the theory of production describes the technology of a polluting firm in this way. The shadow prices of environmental resources are derived in a general framework of an overall planning problem for the economy in which environmental inputs are productive inputs in the industry, use of environment by the industry affects the utility of people, an